A Day In The Life Of Bill Murphy (aka, The Hatfields and the McCoys)
October 24, 1999
Growing up as a kid, I remember reading about these two hillbilly families in
Kentucky named The Hatfields and the McCoys. While they had so much in common,
they were always sparring with each other over their whiskey making, women,
territories and general ways of going about things.
That appears to be what we have now in the gold producing world.
The Hatfields are the gold producers that still believe in the use of
substantial forward sale coverage ala Barrick Gold, Normandy Mining,
Sons of Gwalia. The McCoys believe in minimal, or no forward sale coverage,
at this point in time. That camp includes Gold Fields, Newmont Mining,
Homestake Mining, Agnico-Eagle, etc.
All of these companies have so much in common, but significantly disagree
about the wisdom of forward coverage in today's gold market
As a result of the serious financial problems of Ashanti and Cambior...
Earlier this week, I went to Denver to visit with as many executives
from gold mining companies as I could that were attending the Denver
Gold Group Conference...
Our logic is very straightforward:
*The supply/demand fundamentals are very bullish...
*Shareholders invest in gold companies to...
* Potential gold share investors will scrutinize hedging policies in
increasing numbers and shy away from the heavily hedged producers.
They will do so because of a desire to profit from advancing gold prices;
more and more shareholders will not want the discomfort of fearing
company collapse because of a booming gold price. Increasingly, they
will shy away from the big hedgers.
*The horrific fates of Cambior and Ashanti will further scare away...
*Executives that do not take prudent action by taking in some coverage
when they can on this price setback will most likely face the wrath of...
Excerpts from this Bloomberg release sheds some more light...
Gold Conference Sounds Cautious Note as Hedging Draws Scrutiny
DENVER, Oct. 23 (Bloomberg) -- Investors at this week's annual gold
conference in Denver weren't as euphoric as the metal's recent price
surge would suggest.
Instead of celebrating the past month's 13 percent gain, gold executives
and their shareholders were nervously fixated on hedging contracts...
Hedging programs were called into question this month after rising gold
prices -- usually good news for producers -- sent shares of Canada's
Cambior Inc. and Ghana's Ashanti Goldfields Co. reeling...
"I have a better understanding of this whole hedge book issue, and it's
going to help me restructure my portfolio," said Gil Atzmon, portfolio
manager at U.S. Global Investors Inc...
After most presentations at the conference, whose attendees included
AngloGold Ltd., the biggest producer, and Barrick Gold Corp., ranked No.
4, investors buttonholed managers to ask about one thing: hedging. It's
an aspect of their business some companies often don't fully disclose.
Some investors, newly enlightened about the risks of hedging, said they
favor producers that do little or none of it...
"I will increase my exposure in companies that have more exposure to a
rising gold price and decrease in those that have given up that exposure
by overhedging," said Atzmon.
Companies are responding to higher gold prices in a variety of ways.
Some, such as Echo Bay Mines Ltd. of Englewood, Colorado, and
Johannesburg-based Gold Fields Ltd., said they're reducing their hedge
positions. Battle Mountain Gold Co. plans to hedge more.
Others, such as Franco-Nevada Mining Corp. and Goldcorp Ltd.,
aren't hedged at all and have no plans to start. Cambior said in its
presentation that it's looking for partners and considering selling its
base-metals business to boost shareholder value. Ashanti didn't attend
at the conference.
... this from Graham Birch, who manages $1 billion in mining sector
equities for Mercury Asset Management. Bloomberg -Oct. 22 - London:
"Hedging has been the hot topic at gold conference in Denver this week.
Questions about companies' hedge books are being raised. So far the
stock market has done a pretty good job of punishing companies with
hedging problems."
"In the end we'll probably see a huge increased transparency about what
mining companies are doing. Otherwise companies will be faced with a
flood of questions about hedges every time they give a presentation."
GATA's fax campaign was right on target. The action that Cafe member and
world famous novelist, Arthur Hailey, took of announcing that he sold
his Barrick Gold shares because of their hedging policies, made its
mark. As more and more Arthur Haileys of the world take similar action,
the share prices of these heavily hedged companies will lag. This will
cause the institutional money managers to dump these shares in a
relative sense as these managers compete on a performance basis. This
will exert further pressure on managements to reduce forward coverage,
etc. That is just a matter of time and is a given in my book. That is
why GATA will encourage these companies to cover sooner rather than
later. Good for them and good for gold as producer buybacks can only be
very constructive for the gold price.
My trip to Denver was most enjoyable. After my lunch with Golden Star
Resources executives and some Cafe members at the Brown Palace ,
I hightailed it over to the Westin Hotel, the destination of your faxes
to gold company executives. Wouldn't you know that the first one I would
bump in to was Barrick CFO, Jamies Sokalsky. I only knew it was him
because of a prominent nametag badge on his suitcoat. This was quite
amusing. Robert Champignion de Crespigny, Normandy Mining's Chairman,
sat at the table next to me at lunch. The Normandy Mining Chairman was the
one who refused to visit with me in Vancouver, Canada after one of his senior
executives set an appointment for me to travel 2,000 miles to meet him.
This was to be a positive energy trip, so I...
... is exactly what it was, a very positive experience.
While I did not attend the conference itself, the real action was taking
place in the lounge area on the main floor, the hospitality suites and
the private dinners. Those I had some access to.
Cafe members, Doug Pollitt and Peter Bojtos, seemed to know many of the
players in attendance and were very helpful in giving me direction.
After saying hello to Roger Kebble, Chairman of Durban Roodeport Deep Ltd,
I visited with Louis Lepry, CEO of Metallica Resources Inc. Louis was very
charming and I learned all about his company's exciting south of the
border gold prospects.
Then, a short visit with Frank Veneroso and Marshall Auerback of
Veneroso Associates. Frank was one of the stars of the conference as
many of the producers are beginning to realize Frank is the one with the
correct handle on the supply/demand and gold loan numbers. Now that the
manipulation game is changing, the gold world are comprehending that
Frank Veneroso has been right all along. That is very good news for gold
bullion and gold company shareholders as Frank's equilibrium price for
gold is a bit north of $600.
Had a great chat with the spirited John Embry, who is the highly regarded
money manager for the Royal Bank of Canada. A big...
On to the Gold Fields hospitality suite with Doug and Peter. The host,
Chris Thompson, Chairman of Gold Fields Ltd, could not have been nicer.
Not only has he become one of the leaders in the gold industry, he is a
real gentleman.
I also had the pleasure of meeting and talking with:
Ron Binns, CFO of Euro-Nevada
Catherine McLoud-Seltzer, President of Pacific Rim
Joseph Conway, President of Repadre Capital Corporation
Bernard Swanepool, CEO of Harmony Gold Mining Company Limited
On to the Aussie hospitality suite. Right up my alley, being a beer drinker.
First up, was Peter Lalor, Chairman of the super hedged Sons of Gwalia...
Alan Brash, Corporate Development Manager for Acacia Resources, was
pleasant and uncertain as his company is in the middle of a take over bid.
Terry Burgess, Financial Evaluation Manger for Delta Gold, N.L
(another big hedger) was also very engaging.
On my way out, I spent some time with Brett Kebble, of JCI South African...
Time for dinner. Doug knew of some dinners planned by one of the well
known brokerages so Doug, Peter B, and I scooted it over to the local
restaurant where they were being held. It just so happened that one of
the dinners was for Wayne Murdy, CEO of Newmont Mining. There just
happened to be 3 extra seats, so we were graciously asked to join.
Wayne Murdy is a class act. Newmont Mining shareholders have a strong,
confident steward at the helm.
The evening ended with a good conversation with Rex McLennan,
CFO of Placer Done. Another smart cookie.
In addition, I had the opportunity to talk with money managers and gold
market analysts. It was most enjoyable and has given me a better idea of
how to best direct the activities of the Gold Anti-Trust Action Committee.
To the markets:
There is much consternation in our camp about this price set back.
While none of us like it, the market action is very normal; especially,
since the bullion dealer camp is doing whatever they can to beat down
the gold price ahead of the Ashanti work out negotiations.
Every $10 in the gold price affects these negotiations in a significant way.
The lower the gold price is, the easier the work out becomes. Ashanti has a
standstill agreement with the dealers regarding margin calls until tomorrow.
Hard to say how this will play out.
This is my kind of headline:
NOBEL WINNER MUNDELL SAYS CENTRAL BANK GOLD SALES "IDIOTIC"
New York--Oct 20--Robert Mundell, winner of the 1999 Nobel Economics
Prize, today described gold sales by national central banks over the
past 5 years as "idiotic."
The CFTC Commitment of Trader report showed as of this past Tuesday...
Harry Schultz, spotted an interesting Jude Wanniski (a noted economist)
comment on Gary North's Y2K site (www.garynorth.com). Wanniski was talking
about potential global financial and banking sector systemic failures
due to Y2K related breakdowns:
"'This is why the dollar must be fixed to gold prior to Y2K or
Greenspans's CDC, to reduce this gigantic problem by simplification."
While gold was mired in the $250's, I mentioned to the Cafe that sources
told me that the Saudi's were on the hunt for physical gold. Yesterday,
from a completely different source, that information was confirmed...
The gold move is the REAL McCOY ! One day soon, the price of gold will
suddenly rocket up again...
... the share prices of the junior and exploration companies will soar
too. This time, there may not be much stock for sale and "buying in" at
great prices could become difficult at times.
All the best,
Bill Murphy, Chairman
Gold Anti Trust Action (GATA) gata.org
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